1 FARUQI FARUQI, LLP VAHN ALEXANDER (167373)securities.stanford.edu/filings-documents/1046/ACI00_01/... · 2011. 7. 7. · 22 in January 2010. Harris is the former CEO of Intellon

Case5:11-cv-00640-LHK Documental Filed06/30/11 Pagel of 33

1 FARUQI & FARUQI, LLPVAHN ALEXANDER (167373)

2 1901 Avenue of the Stars, Second FloorLos Angeles, CA 90067

3 Telephone: (310) 461-1426Facsimile: (310) 461-1427

4 valexanderriblaruqilalAi.corn

5 Attorneys for Plaintiff

6 UNITED STATES DISTRICT COURT

7 NORTHERN DISTRICT OF CALIFORNIA

8 SAN JOSE DIVISION

9JOEL KRIEGER, Individually and on Behalf Case Number 11-CV-00640-LHK (HRL)

10 of All Others Similarly Situated, CLASS ACTION

11 Plaintiff,FIRST AMENDED CLASS ACTION

12 vs. COMPLAINT FOR VIOLATIONS OFSECTIONS 14(a) AND 20(a) OF THE

13 SECURITIES EXCHANGE ACT OFATHEROS COMMUNICATIONS, INC., 1934

14 DR. WILLY C. SHIH, DR. TERESA H.MENG, DR. CRAIG H. BARRATT, JURY TRIAL DEMANDED

15 ANDREW S. RAPPAPORT, DAN A.ARTUSI, CHARLES E. HARRIS, Judge: Hon. Lucy H. Koh

16 MARSHALL L. MOHR, CHRISTINE Ctrm.: #4 5 th FloorKING, QUALCOMM INCORPORATED, Date Action Filed: February 10 2011

17 and T MERGER SUB, INC.,

18 Defendants.

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF SECTIONS 14(a)AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Case5:11-cv-00640-LHK Document50 Filed06130111 Page2 of 33

1 Plaintiff Joel Krieger ("Plaintiff'), by and through his attorneys, alleges the following as to

2 himself and on information and belief (including the investigation of counsel and review of publicly

3 available information) as to all other matters stated herein:

4 INTRODUCTION

5 1. This is a shareholder class action brought by Plaintiff on behalf of himself and

6 similarly situated shareholders of Atheros Communications, Inc. ("Atheros" or the "Company")

7 concerning the acquisition of the Company by Qualcomm Incorporated, and its wholly owned

8 subsidiary T Merger Sub, Inc., (collectively "Qualcomm").

9 2. On January 5, 2011, Atheros and Qualcomm issued a press release announcing that

10 they had entered into a definitive merger agreement (the "Merger Agreement") pursuant to which

11 Qualcomm would acquire Atheros for $45.00 per share in an all-cash deal valued at approximately

12 $3.1 billion (the "Merger").

13 3. On February 11, 2011, Atheros and the Individual Defendants (defined below) filed

14 a Schedule 14A Definitive Merger Proxy ("Definitive Proxy") with the United States Securities and

15 Exchange Commission ("SEC").

16 4. On March 7, 2011, as a result of and to address this litigation as well as parallel

17 related proceedings in Delaware state court, Atheros and the Individual Defendants amended their

18 Definitive Proxy (the "Proxy Supplement"). The Proxy Supplement disclosed the following

19 material facts, among others, that had been omitted and/or mischaracterized in the Definitive Proxy:

20 (i) approximately 98% of the $24,000,000 fee owed by the Company to Qatalyst Partners

21 ("Qatalyst"), the Company's financial advisor on the Merger, was contingent upon the completion

22 of the Merger; and (ii) the Company's Chief Executive Officer ("CEO"), defendant Craig Barratt,

23 had learned at least as far back as October 29, 2010, that Qualcomm intended to employ him after

24 any merger between the companies.

25 5. On March 28, 2011, 74.6% of Atheros shareholders voted to approve the Merger

26 based on the statements in the Definitive Proxy and the Proxy Supplement.

27

28 1 FIRST AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF SECTIONS 14(a)

AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934


1 6. Unbeknownst to Atheros' shareholders, the Definitive Proxy failed to disclose the

2 existence and nature of two key financial analyses that were performed by Qatalyst in support of its

3 fairness opinion and provided to and relied upon by the Company's board of directors (the "Board")

4 in connection with the Board's decision to to approve the Merger. The two analyses at issue were a

5 "Summary of Analyst Estimates & Valuation Methodologies" and a "Historical Termination Fee

6 Analysis." Each of these analyses is set forth in detail below and was omitted from the Definitive

7 Proxy.

8 7. As a result of the false and misleading Definitive Proxy and related filings thereto,

9 the Merger was consummated and Atheros' public stockholders were unlawfully divested of their

10 holdings in the Company.

11 JURISDICTION AND VENUE

12 8. This Court has jurisdiction over all claims asserted herein pursuant to 28 U.S.0

13 §1331 in that Plaintiff's claims arise in part under the Constitution and laws of the United States,

14 including the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §78aa1 and 28 U.S.C.

15 §1331. This Court also has supplemental jurisdiction pursuant to 28 U.S.C. §1367(a).

16 9. Venue is proper in this Court pursuant to 28 U.S.C. §1391 because Atheros

17 maintains its principal place of business in San Jose, California, and is therefore a resident of this

18 District.

19 PARTIES

20 10. Plaintiff was a holder of Atheros common stock at all relevant times prior to the

21 consummation of the Merger. Plaintiff is a citizen of New York.

22 11. Atheros was a corporation organized and existing under the laws of the State of

23 Delaware, with a principal executive office at 1700 Technology Drive, San Jose, California 95110.

24 As a result of the consummation of the Merger, Atheros is now a wholly owned subsidiary of

25 Qualcomm and operates as Qualcomm Atheros, Inc. (also "Atheros"). Atheros is a leading global

26 provider of innovative technologies for wireless and wired communications products that are used

27 by a range of customers, including manufacturers of personal computers ("PC's"), networking




1 equipment for digital home, small office/home office (SOHO), enterprise and carrier deployments,

2 and consumer electronics for home and mobile applications. The Company's product portfolio

3 includes solutions for wireless local area network ("WLAN"), Mobile WLAN, Ethernet, Bluetooth,

4 global positioning system ("UPS"), and powerline communications ("PLC"). Atheros had a long-

5 standing relationship with defendant Qualcomm that has resulted in numerous Joint Design wins

6 with leading Original Equipment Manufacturers ("OEMs"). Prior to the consummation of the

7 Merger, Atheros' stock was listed on the NASDAQ exchange under the symbol "ATHR."

8 12. Defendant Dr. Willy C. Shih ("Shih") served as a Director of the Company from

9 November 2006 and was Chairman of the Company's Board starting in October 2010.

10 13. Defendant Dr. Teresa H. Meng ("Meng") was co-founder of the Company and

11 served on the Board starting in May 1998. Meng served as a consultant to the Company from

12 October 2000 through December 2006. Meng was President and CEO of the Company from May

13 1998 to October 1999.

14 14. Defendant Dr. Craig H. Barratt ("Barratt") served as the Company's President and

15 CEO starting in March 2003. Barratt served as a Director of the Company starting in May 2003.

16 Barratt was Vice President of Technology of the Company from April 2002 until March 2003.

17 15. Defendant Andrew S. Rappaport ("Rappaport") served as a Director of the Company

18 starting in December 1998.

19 16. Defendant Dan A. Artusi ("Artusi") served as a Director of the Company starting in

20 July 2008.

21 17. Defendant Charles E. Harris ("Harris") served as a Director of the Company starting

22 in January 2010. Harris is the former CEO of Intellon Corporation, which was acquired by Atheros

23 in December 2009.

24 18. Defendant Marshall L. Mohr ("Molu-") served as a Director of the Company starting

25 in November 2003.

26 19. Defendant Christine King ("King") served as a Director of the Company starting in

27 April 2008.

3 28FIRST AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF SECTIONS 14(a)



1 20. Defendants Shih, Meng, Barratt, Rappaport, Artusi, Harris, Mohr, and King are

2 sometimes collectively referred to herein as the "Individual Defendants" or the "Board."

3 21. Defendant Qualcomm is a Delaware corporation headquartered at 5775 Morehouse

4 Drive, San Diego, California 92121. Qualcomm is a designer and manufacturer of semiconductors

5 for wireless phones and other equipment for advanced commercial wireless applications. The

6 company is the chief architect and proponent of the third-generation code division multiple access

7 ("CDMA") wireless standard. Qualcomm holds an extensive intellectual-property portfolio for

8 spread-spectrum technologies, including CDMA and WCDMA/UMTS. The company produces

9 semiconductors for mobile phones as well as integrated processors and basebands for mobile PCs.

10 In addition, Qualcomm produces wireless communications and tracking systems for commercial

11 applications. The company also promotes BREW technology, which permits carriers to

12 differentiate their services with proprietary software applications. Qualcomm's stock is traded on

13 the NASDAQ under the symbol "QCOM."

14 22. Defendant T Merger Sub, Inc. ("T Merger Sub") was a Delaware corporation and a

15 wholly owned subsidiary of Qualcomm.

16 23. Defendants Qualcomm and T Merger Sub are sometimes referred to herein

17 collectively, as "Qualcomm."

18 24. The Individual Defendants, Qualcomm and Atheros are sometimes referred to herein

19 collectively, as "Defendants."

20 CLASS ACTION ALLEGATIONS

21 25. Plaintiff brings this action individually and as a class action pursuant to Rule 23 of

22 the Federal Rules of Civil Procedure on behalf of all holders of Atheros stock who were harmed by

23 Defendants' actions described herein (the "Class"). Excluded from the Class are Defendants, and

24 any person, firm, trust, corporation, or other entity related to or affiliated with any Defendants.

25 26. This action is properly maintainable as a class action. The Class is so numerous that

26 joinder of all members is impracticable. As of the record date for the March 18, 2011 vote on the

27




1 Merger, Atheros had in excess of 73 million shares of common stock outstanding. Hundreds, if not

2 thousands, of beneficial holders, owned these shares.

3 27. There are questions of law and fact which are common to the Class and which

4 predominate over questions affecting any individual Class member. The common questions

5 include, inter al/a, the following:

6 (a) whether the Company and the Individual Defendants violated §14(a) of the

7 Exchange Act by issuing a Definitive Proxy concerning the Merger that contained false or

8 misleading statements or omissions of material fact;

9 (b) whether the misstatements or omissions were made with the requisite level of

10 culpability; and

11 (c) whether the statements or omissions provided an essential link in the

12 accomplishment of the Merger.

13 28. Plaintiff's claims are typical of the claims of the other members of the Class and

14 Plaintiff does not have any interests adverse to the Class.

15 29. Plaintiff is an adequate representative of the Class, has retained competent counsel

16 experienced in litigation of this nature, and will fairly and adequately protect the interests of the

17 Class.

18 30. The prosecution of separate actions by individual members of the Class would create

19 a risk of inconsistent or varying adjudications with respect to individual members of the Class that

20 would establish incompatible standards of conduct for the party opposing the Class.

21 31. Plaintiff anticipates that there will be no difficulty in the management of this

22 litigation. A class action is superior to other available methods for the fair and efficient

23 adjudication of this controversy.

24 32. Defendants have acted on grounds generally applicable to the Class with respect to

25 the matters complained of herein, thereby making appropriate the relief sought herein with respect

26 to the Class as a whole.

27




1 SUBSTANTIVE ALLEGATIONS

2 A. Background

3 33. Atheros was founded in 1998 by defendant Meng and Reid Weaver Dennis, a

4 Professor of Electrical Engineering at Stanford University. Meng and the Atheros team created a

5 technology breakthrough, by combining its wireless and networking systems expertise with high-

6 performance radio frequency (RF), mixed signal and digital semiconductor design skills to provide

7 highly integrated chipsets that are manufactured on low-cost, standard complementary metal-oxide

8 semiconductor ("CMOS").

9 34. One of Atheros' first designs was the CMOS wireless LAN 802.11a radio chipset, a

10 two-chip "radio-on-a-chip" ("RoC") chipset that combines features such as a radio, power

11 amplifier, low-noise amplifier and a media access control ("MAC") processor so its customers can

12 build sleeker wireless networking equipment. The chipsets are standardized on the 0.25 micron

13 digital CMOS process.

14 35. Due to the Company's innovative design and technology, the Company was able to

15 raise $100 million in venture funding before its initial public offering ("IPO") in 2004.

16 36. At the time of its IPO, the Company was entering the public marketplace as part of

17 the white-hot Wi-Fi movement, which analysts viewed as a watershed year for the 802.11 chip

18 market. A Wi-Fi enabled device such as a personal computer, video game console, smartphone or

19 digital audio player can connect to the Internet when within range of a wireless network connected

20 to the Internet. The Wi-Fi movement was seen as a progression in technology as silicon vendors

21 push beyond the small office/home office scene, coffee houses and airports and into the enterprise,

22 cell phone, and DSL markets.

23 37. Atheros was poised to take advantage of this market as it had advanced Wi-Fi

24 technologies such as Super G and Wake-on-Wireless. Atheros' Super G technology allowed for

25 packet bursting, data compression and the ability to support larger frames and a dynamic multi-

26 channel mode, delivering 108Mbps data links with actual end user TCP/IP throughput of up to

27 90Mbps in 802.11a/b/g, 802.11b/g and 802.11a wireless networks. Atheros' Wake-on-Wireless




1 capability extended network management to the Wi-Fi environment, while also providing

2 compatibility with existing network equipment, management software, and industry standards for

3 remote wakeup functionality.

4 38. At the time of its IPO, Atheros included as customers Hewlett-Packard, IBM, NEC,

5 Sony and Toshiba and wireless LAN gear manufacturers, D-Link, JO Data, Linksys and Microsoft.

6 39. Atheros then leveraged its design expertise on CMOS in high-performance radio

7 frequency, mixed signal and digital semiconductor solutions, to drive design integration of multi-

8 chip solutions down to single chips.

9 40. By 2006, the Company had shipped more than 75 million wireless LAN ("WLAN")

10 chipsets. 2006 marked the announcement of Atheros' strategic collaboration with heavyweight

11 Qualcomm for the development of advanced cellular mobile handsets with Wi-Fi connectivity.

12 Specifically, on February 10, 2006, the Company announced a collaboration with defendant

13 Qualcomm to develop interoperability between Atheros' highly integrated, single-chip Radio-on-

14 Chip for Mobile ("ROCm") solution and select Qualcomm Mobile Station Modem ("MSM")

15 chipsets. These MSM integrated circuits were designed to offer connectivity to WLAN, as well as

16 to existing wireless networks, and featured compatibility with 802.11b and 802.11g protocols on

17 both CDMA2000 and WCDMA networks. The combined solutions enabled cellular devices to

18 support a new level of 802.11g and 802.11a/g WLAN technology, which addressed the growing

19 demand for data-intensive products, such as advanced mobile handsets, on select MSM integrated

20 circuits.

21 41. It was thought that by putting both WLAN and cellular capability in one phone, there

22 would be a migration of consumers using a single phone and switching off to VoIP (voice over

23 Internet Protocol) when they come home, eventually helping users get rid of their landline phones

24 and pay less for the calls they make at home. The integration of cellular and Wi-Fi technologies

25 also made it easier and less expensive for phone makers to come out with dual-mode devices.

26 42. Commenting on the collaboration, defendant Barratt stated.

27




We are pleased to work with Qualcomm, the recognized leader in CDMA and 30

1 cellular technologies. Our relationship has resulted in the combination of two of theworld's most popular wireless technologies in a single solution. This will result in true

2 mobility, enabling wireless users to achieve anywhere, anytime connectivity to people,content and services.

3

43. Furthermore, Mike Concannon ("Concannon"), Vice President of Strategic Products4

for QUALCOMM CDMA Technologies, stated.5The strategic collaboration between QUALCOMM and Atheros focuses on the

6 growing worldwide demand for additional connectivity features in mobile handsets.Having support for Atheros' ROCm solutions on our MSM chipsets helps us continue

7 to bring a new level of mobility to wireless users and deliver numerous new

8possibilities to the wireless industry.

44. While growing its Wi-Fi leadership position, Atheros also expanded its portfolio of9

communications solutions with the addition of PAS cellular, mobile WLAN, Bluetooth, Ethernet10

and UPS technologies. In turn, by 2007, Atheros become a leading supplier of communications11

semiconductor solutions with revenue of $417 million in 2007. That same year, Atheros was also12

awarded the Fabless Semiconductor Alliance's Most Respected Emerging Public Fabless Company,13

based on industry-wide peer opinion.14

45. With bandwidth-intensive applications such as video streaming becoming more15

commonplace, Wi-Fi has demanded the evolution of higher speed technologies. To meet this need,16

Atheros has transitioned from pioneering the world's first 802.11a technology, to becoming a17

leading supplier of 802.11g, to now providing the most widely adopted 802.11n ("11n") technology18

worldwide. Align, which is Atheros' single-stream 11n technology, offers the fastest Wi-Fi19

connectivity for netbooks and value-class notebooks. The Align product family began shipping in20

Q4 of 2008 and has had the fastest and largest-volume chip ramp in Atheros history. Align is21

currently used by seven of the top 10 PC OEMs and in access points/routers of the top 5 retail22

networking vendors.23

46. ABI Research, a consumer-electronics consultant, has projected that 802.11n single-24

stream chipsets will be the dominant protocol shipped in the next few years, due in large part to the25

ever increasing slew of new devices that are Wi-Fi enabled.26

27



Case5:11-cv-00640-LHK Document50 Filed06130111 Pagel 0 of 33

1 47. By 2008 the Company returned 55% annually from mid-2005 through mid-2008.

2 Fortune listed the Company on its list of 100 fastest-growing companies in 2008.

3 48. On February 16, 2009, Atheros announced a further development in its long standing

4 collaboration with Qualcomm by announcing the availability of its latest-generation AR6002 Radio-

5 on-Chip for Mobile ("ROCm") WLAN single-chip with Qualcomm's BTS4025 Bluetooth System-

6 on-Chip ("SoC") that supports EDR 2.1 with class 1.5 power. This combined solution was

7 designed to deliver advanced system performance to OEMs and ODMs developing cellular phones

8 based on any of Qualcomm's Mobile Station Modem ("MSM") chipsets for CDMA and WCDMA

9 (UMTS), including multiple MSM product families. According to the press release announcing the

10 development.

11 The combination of Atheros and Qualcomm solutions has resulted in feature-richplatforms that have been vigorously vetted by developers, customers and consumers,

12 and readily meet today's demanding smartphone requirements. To date, thecompanies have achieved numerous joint design wins, with dozens of end-products in

13 the market today.

14 49. The AR6002 ROCm featured industry-leading RF performance, power consumption,

15 solution size and coexistence with Qualcomm's BT54025 SOC. The AR6002 platform set an

16 industry benchmark for high performance, low power mobile WLAN solutions, consuming 30

17 percent less power in active mode than the nearest competitive solution and near-zero power in

18 standby mode. The AR6002 also offered the advantage of being a fully independent WLAN device,

19 which does not tax the cellular phone's host processor like competing solutions. Further,

20 Concannon of Qualcomm has stated in pertinent part:

21 This seamless combination of Qualcomm's Bluetooth and Atheros' WLAN for mobilewill help our customers easily integrate high-performance wireless functionality into

22 their products and ensure fast time-to-market. Atheros' AR6002 and Qualcomm'sBTW4025 products have been rigorously validated and tested in combination to assure

23 a highly reliable and satisfactory user experience.

24 50. Moreover, Amir Faintuch, Vice President and General Manager at Atheros' Mobile

25 Wireless Business Unit, added:

26 We are pleased to generate new synergies with Qualcomm solutions to benefit our

27customers. Together, we bring a fully-integrated, complementary offering to market.



Case5:11-cv-00640-LHK Document50 Filed06/30/11 Pagel 1 of 33

This combined solution featuring Qualcomm's Bluetooth and Atheros' WLAN

1 technologies is optimized with the next-generation mobile phone system in mind.

251. The Atheros and Qualcomm collaboration resulted in significant and numerous Joint

3Design wins with leading OEMS (based on Qualcomm platform) with the collaboration accounting

4for the vast majority of these wins.

552. Atheros' outstanding design technology has also resulted in impressive financial

6growth over the years. By 2009, revenues exceed $542 million. 2009 also marked the Company's

7eighth consecutive year of annual revenue growth, with gross margins consistently near 50 percent.

8The Company also ended the year with over $400 million in cash, with no long term debt.

953. 2009 also marked a meaningful progression in the Company's goal of revenue

10diversification, as over 20% of 2009 revenue came from outside of its core WLAN business. The

11Company's diversification strategy was also enhanced by the completion of its acquisition of

12Intellon Corporation, thereby securing the leadership position in the power line communications or

13PLC market.

1454. More recently, for example, on April 19, 2010, the Company announced financial

15results for its first quarter ended March 31, 2010. Revenue in the first quarter of 2010 was a record

16$214.7 million, up 16 percent compared to $185.7 million reported in the fourth quarter of 2009.

17First quarter 2010 revenue increased 144 percent compared to $87.9 million reported in the first

18quarter of 2009. The Company recorded net income in the first quarter of 2010 of $19.7 million or

19$0.27 per diluted share. This compares with GAAP net income of $15.6 million or $0.24 per

20diluted share in the fourth quarter of 2009. Net loss in the first quarter of 2009 was $7.6 million or

21$0.12 per diluted share. Cash, cash equivalents and marketable securities were $443.6 million at

22March 31, 2010, up $41.4 million from the balance at December 31, 2009. Non-GAAP gross

23margins in the first quarter of 2010 were 49.5 percent, compared to 50.2 percent reported in the

24fourth quarter of 2009 and 48.1 percent in the first quarter of 2009. Commenting on these

25impressive results, defendant Barratt stated.

26We experienced broad-based strength across our PC OEM and Networking channels

27 including strong momentum for our newly acquired PLC business. Our success in

1




growing the top line, and more importantly, the design win momentum in each of our

1 sales channels, further validate our hybrid networking strategy and demonstrate our

2diversification initiatives are paying dividends.

55. On the ensuing Conference Call held on April 20, 2010, Atheros issued impressive3

4 second-quarter guidance, for a seasonally slow quarter. According to Atheros' Chief Financial

Officer ("CFO") Jack Lazar ("Lazar") the Company expected to grow sales by about 9.5% quarter-

6

5

over-quarter, and net income was expected to exceed the $0.60 mark per share. In response,

Atheros common stock jumped from $38.15 before the conference call to reach an all time high7

8 $43.90 on April 21, 2010, the day after the call.

56. Moreover, although the Company has been affected by the lingering effects of the9

10 economic recession, Atheros has been able to achieve consistent growth. For example, on July 19,

2010, Atheros announced financial results for its second quarter ended June 30, 2010. Revenue in11

12 the second quarter of 2010 was a record $238.2 million, up 11 percent compared to $214.7 million

13 reported in the first quarter of 2010. Second quarter 2010 revenue increased 112 percent compared

14 to $112.2 million reported in the second quarter of 2009. The Company recorded net income in the

15 second quarter of 2010 of $29.7 million or $0.41 per diluted share. This compares to GAAP net

16 income of $19.7 million or $0.27 per diluted share in the first quarter of 2010. Net loss in the

17 second quarter of 2009 was $0.3 million or $0.00 per diluted share. Cash, cash equivalents and

18 marketable securities were $508.4 million at June 30, 2010, up $64.8 million from the balance at

19 March 31, 2010. Non-GAAP gross margin in the second quarter of 2010 was 49.8 percent of

20 revenue, compared to 49.5 percent reported in the first quarter of 2010 and 47.4 percent in the

21 second quarter of 2009. Non-GAAP net income in the second quarter of 2010 was $49.2 million or

22 $0.67 per diluted share, compared to $40.7 million or $0.57 per diluted share in the first quarter of

23 2010 and $12.3 million or $0.20 per diluted share in the second quarter of 2009. Commenting on

24 these results, defendant Barratt stated.

Strong demand from our networking and consumer channels enabled us to post record

25 revenue, operating profit and cash flow generation in the second quarter. Connectivitysolutions for our consumer channel are being widely adopted by a variety of customers

26 reflecting new market opportunities for our portfolio of communications products.Our networking channel was also strong in the second quarter, and with the anticipated

27 acquisition of Opulan Technologies, Atheros is further broadening its platform1




solutions for these customers. We believe our vision of driving widespread

1 connectivity into an expanding number of hybrid networking, PC and consumer

2solutions, positions us well for the future.

57. Over the next several months, however, Atheros shares fell dramatically in an3

overreaction to disappointing news announced by competing chip makers in the video game and PC4

industry market. Specifically, Intel Corporation and Advanced Micro Devices, Inc. guided5

6 expectations lower, citing reduced sales of computers. Despite having less than one-third of its

business focused on the PC business, Atheros shares declined nearly 40 percent from its 52- week7

8 high.

58. The Company also suffered from a perception that it lacked exposure to the booming9

10 tablet market, which many believed was cannibalizing the netbook market where Atheros had

several big customers.11

12 59. Several analysts noted this overreaction. Christopher McHugh, senior portfolio

13 manager at Turner Investment Partners stated:

You've had a lot of negative news hitting Atheros over the last three or four months.

14 Going forward, you won't have those issues. It's a stock with a very cheap valuation,that's a market leader in several businesses.

15

16 60. On October 25, 2010, Atheros reported consolidated earnings results for the third

17 quarter and nine months ended September 30, 2010. Revenue in the third quarter of 2010 was a

18 record $247.1 million, up 58 percent compared to $156.6 million reported in the third quarter of

19 2009. The Company recorded net income in the third quarter of 2010 of $28.1 million or $0.39 per

20 diluted share, compared to net income in the third quarter of 2009 of $38.6 million or $0.60 per

21 diluted share. For the nine months, the Company reported income from operations of $80.9 million

22 and net income of $77.6 million or $1.07 per diluted share on net revenue of $700.0 million

23 compared to income from operations of $5.7 million and net income of $30.8 million or $0.49 per

24 diluted share on net revenue of $356.8 million reported in the same period last year. Commenting

25 on these results, defendant Barratt noted:

26 While we continue to see weakness in certain channels, increasing demand forAtheros' ROCm® low-power mobile connectivity solutions in a growing number of

27 consumer electronics products fueled our record revenue in the third quarter.

1




Additionally, with our recently completed acquisition of Opulan, we further

1 strengthened our networking product line, enabling us to address an even larger

2portion of the rapidly expanding global networking market.

3 61. Defendants recognized that Atheros common stock was "undervalued," and the

4 Company was optimally poised for future growth and strong financial performance. Rather than

5 permitting the Company's shares to continue to trade freely and allowing its public shareholders to

6 reap the benefits of the Company's increasingly positive prospects, the Individual Defendants have

7 acted for the benefit of Qualcomm, and to the detriment of the Company's shareholders, by entering

8 into the Merger. The Individual Defendants effectively capped Atheros' price at a time when the

9 Company's stock was suffering the effects of a lingering economic recession and when it was

10 poised to capitalize on its positive and encouraging financial outlook.

11 B. The Merger

12 62. On January 5, 2011, Atheros and Qualcomm issued a press release announcing that

13 they had signed a definitive agreement for Qualcomm to acquire Atheros in a cash transaction

14 valued at approximately $3.1 billion.

15 63. Under the terms of the Merger Agreement, Atheros shareholders were to receive

16 $45.00 in cash for each share of Atheros they owned.

17 64. In connection with the announcement of the Merger, defendant Barratt stated:

18 Qualcomm and Atheros have a long history of collaboration and share a culture oftechnical innovation and execution excellence. The Atheros team will build upon

19 Qualcomm's strengths and leadership to bolster our customers' ability to deliver

20innovative and differentiated products in the increasingly connected world.

21 65. Moreover, Dr. Paul E. Jacobs, Chairman and CEO of Qualcomm stated.

22 It is Qualcomm's strategy to continually integrate additional technologies into mobiledevices to make them the primary way that people communicate, compute and access

23 content. This acquisition is a natural extension of that strategy into other types ofdevices. The combination of Qualcomm and Atheros is intended to accelerate this

24 opportunity by utilizing best-in-class products for communications, computing andconsumer electronics to broaden existing customer relationships and expand access to

25 new partners and distribution channels.

26 66. Despite Defendants' positive statements regarding the Merger, the transaction is

27 unfair to Atheros' stockholders. Indeed, the consideration offered to Atheros' stockholders in the




1 Merger is unfair and grossly inadequate because, among other things, the intrinsic value of Atheros'

2 common stock is materially in excess of the amount offered for those securities in the Merger given

3 the Company's prospects for future growth and earnings.

4 67. The Merger consideration represents a premium of 22 percent over the Company's

5 closing share price on Monday, January 3, 2010, the day before The New York Times reported the

6 deal. The $45 per share offer is also a nominal premium to the 52 week high of $43.90 set just last

7 year on April 21, 2010, after the Company issued upbeat guidance and prior to the announcement of

8 the anticipated 10% decline for the third quarter of 2010.

9 68. Moreover, on January 5, 2011, Morningstar reported "[by comparison, Intel INTC

10 paid a near 60% premium for McAfee in 2010, and we've seen other smaller chip deals go for 30%-

11 50% premiums in the past year."

12 69. Several analysts noted that most chip companies, including Atheros, were trading

13 with abnormally low 2010 and 2011 P/E multiples. According to The Benchmark Company

14 research note on July 14, 2010, "the chip group trades with an abnormally low P/E when the

15 semiconductor cycle is tolling over and estimates have yet to discount such an inflection."

16 70. Qualcomm's opportunistic bid occurred during a relatively weak point in Atheros'

17 business cycle. As previously discussed, in October, management guided for a 9-11% decline in

18 sales as consumer PC and networking weakness migrated in to the fourth quarter of 2010.

19 71. Moreover, defendant Barratt acknowledged on December 18, 2010, during a

20 Barclays Capital Global Technology Conference that:

21 ... In the guidance for the Q4 that we gave in October, we did reflect at the time thatwe expect PCs to continue to be a weak channel for us in the fourth quarter but we

22 did indicate we expected, in October, for that to be the low point and based on designwin activity and based on presence in some new technology area like Bluetooth, we

23 definitely see PC returning to growth."

24 72. On January 7, 2011, International Business Times reported that:

25 Analysts said the size of the premium leaves room for another bidder to emerge.Intel Corp and Marvell Technology Group Ltd are potential suitors, said Roth

26 Capital analyst Arnab Chanda.

27

1




'If you look at the purchase price, it is clear there were not multiple bidders,' Chanda

1 said.

273. In fact, Qualcomm stock had steadily increased after the announcement of the

3Merger, which is a rarity.

474. In acquiring Atheros, Qualcomm obtained a company with a leading market share

5that was well positioned for growth. Atheros was No. 2 in Wi-Fi chips, a market with great

6potential considering the explosion of devices that connect to the Internet not just PCs and

7wireless routers, but increasingly televisions, cameras, e-book readers and more. IDC Worldwide

8Quarterly PC Tracker ("IDC") estimated that the market for such chips would grow at a 16% annual

9rate from 2008 through 2013. Moreover, Qualcomm obtained a company that recorded $542

10million in revenue last year, posted 60 percent growth for the first quarter of 2010 and has cash

11reserves of $450 million, with no long-term debt.

1275. Moreover, Qualcomm obtained a Company with a distinct advantage in Wi-Fi

13technology, which according to consulting firm In-Stat, is expected to see the number of times

14people use Wi-Fi hot spots rising to 11 billion annually by 2014, from 2 billion in 2010. Companies

15such as AT&T are expanding their Wi-Fi coverage, part of a plan to relieve congestion on cellular

16networks. The Atheros acquisition gave Qualcomm a powerful weapon against Irvine-based

17Broadcom, whose combination Wi-Fi and baseband chips are used by the likes of Apple.

18According to analyst Gary Mobley ("Mobley") of Benchmark Company, "If Qualcomm can add

19features like Wi-Fi, it will increase the average selling price they can charge and their available

20market." Mobley further opined to News Weeek that, "What Qualcomm would gain is having the

21full suite of connectivity offerings."

2276. According to a research report by Piper Jaffrey analyst Auguste Gus Richard

23("Richard"), Qualcomm is well positioned for the "ultramobile era" with the Atheros purchase.

24Richard argued that Atheros products would integrate well with Qualcomm's Snapdragon chip. In

25addition, the combination of Qualcomm and Atheros, which approaches a $1 billion annual revenue

26run rate, will be better positioned to take on Broadcom or Marvell.

27

1




1 77. Atheros shareholders are also now shut out of the Company's increasingly

2 competitive position in chipsets. The Company was well-positioned in the growing market for

3 802.11n wireless solutions. According to Consumer-electronics consultant, ABI Research, on

4 August 18, 2009, 802.11n single-stream is projected to be the dominant protocol shipped in the next

5 few years, due in large part to the ever increasing slew of new devices that are Wi-Fi enabled. Q1

6 2010 reported that 1 in technology is used in netbooks and value-class notebooks by 9 of the top 10

7 PC OEMS and in access points/routers of five of the top five retail networking vendors. Align,

8 which is Atheros' single-stream 1 in technology, began shipping in Q4 of 2008 and has had the

9 fastest and largest-volume chip ramp in Atheros history.

10 78. According to Adam Benjamin ("Benjamin"), an analyst at Jefferies & Co.,

11 Qualcomm is the "most significant beneficiary of the upgrade to 30 and 40 wireless." Benjamin

12 noted that the Merger is a very good deal for Qualcomm, "as it would quickly turn what is currently

13 a glaring weakness in its cellular portfolio into a strength and also gives Qualcomm strong channels

14 into the PC market as tablets become more important."

15 79. Moreover, Mark McKechnie ("McKechnie") of Gleacher & Co. noted that the

16 Atheros acquisition would accelerate Qualcomm's move into tablet computers, as "Atheros's Asia-

17 based design team has over 10 years of experience in working with notebooks OEMs. We believe

18 the Atheros team could accelerate Qualcomm's efforts to add 30/40 LTE (Long Term Evolution,

19 the acronym for the next wireless services) to tablets and notebooks."

20 80. Analysts uniformly recognized the benefits Qualcomm will reap by acquiring

21 Atheros for just $45 per share. For example, analysts expressed the following opinions:

22 "The combination of QCOM and ATHR would be the main beneficiary of 2 keytrends in semiconductors - the 4th wave of computing/ultramobility and the

23 proliferation of internet connectivity. Moreover, we see the combination as

24complementary with little to no customer or product overlap." — Piper Jaffray

"We model Atheros would potentially add $935M of revenue in 2011 and $1B in 2012

25 resulting in $0.05 and $0.07 accretion, respectively, but note that Atheros' 19%-20%operating margins fall below QCOM 26%-29% QCT operating margins and would, we

26 calculate, result in 80-90 bps of margin pressure to QCT....From a strategic point ofview, we believe the proposed acquisition would be a natural fit as the two companies

27 have an existing reference design relationship." — Morgan Stanley1




"The deal makes great sense strategically for QCOM as it would provide QCOM with

1 core competencies in PCs, tablets and WiFi, all of which we are at an early stage forQCOM.... ATHR's roadmap for WiFi is broader and deeper than QCOM, which is

2 playing 'catch-up.' .... Our quick analysis suggests any price around $45 would beslightly accretive to QCOM assuming a cash deal. At $45, ATHR is valued at 22.5x

3 our CY11 estimate of $2.00." — Gleacher & Co.

4 "Is another bidder possible for Atheros? It's possible, but we think this one makessense at current price levels. Atheros had revenues last year of —$923M with GM's

5 approaching 50%, so a price tag of $3.2B suggests 2.9x EV/Sales. And fightingMarvell, Broadcom, Ralink, and Realtek on price isn't a fun dance to watch." — RBC

6 Capital

781. In fact, Qualcomm CEO Paul Jacobs acknowledged on a conference call with

8analysts that Atheros' technology would help it connect phones with multiple emerging devices

9such as tablets:

10This acquisition makes sense on a lot of levels. From a vision standpoint we believe

11 that communications capability will go into more and more devices in the worldaround us and that the phone will be used to interact with these devices. From a

12 strategy standpoint we will continue to lead in technology through significant R&Dinvestments and this acquisition allows us to profit from those investments across a

13 larger base of devices. From a tactical standpoint we will have access to a strongteam and a new set of technologies, partners, and distribution channels and we will

14 also be able to broaden our relationships with existing customers.

15 82. Qualcomm Executive Vice President Steve Mollenkopf ("Mollenkopf') added:

16 Our announcement today is an important step for our business. It is a clear indicationof our strategy to move aggressively into silicon beyond cellular. We believe that it

17 will expand our opportunities with new products, new customers, and new saleschannels. It will enable us to grow a platform business in additional areas such as

18 consumer electronics, networking, and computing. You have heard us talk about ourvision around the convergence of mobility computing and consumer electronics.

19 Our announcements today should be viewed as a statement about our commitment toprovide a complete set of solutions to address this trend as it is clearly unfolding in

20 front of us today.

In the big picture, Qualcomm's purchase of Atheros illustrates how the company

21 plans to become more of a platform provider. To Qualcomm, the future ofcomputing is more about tablets and smartphones than the PC. Simply put,

22 Qualcomm will be on a collision course with the likes of Intel.

23 83. Furthermore, Mollenkopf added:

24 First of all, we think that the platform strength of smartphones is really going togenerate an enormous pressure on a number of adjacent markets to adopt a similar

25 type technology platform. And you are already starting to see that in the case oftablets where the tablets, instead of using technology which historically may have

26 come from platform technology which may have historically come from the PCworld, it is really pulled the phone world up, including bringing technology

27 providers and application suppliers from that world. As we start to drive that1




strategy, which has been a stated strategy for some time, we start to encounter really

1 two areas that we think are addressed by this acquisition. The first one is that youstart to encounter more technology that you need to connect to different things that

2 you need to connect to in the phone. The wireless LAN that you might need tosupport a platform play in a tablet may be different than what you use for a handset.

3 As we do that we either have to invest in that or we need to partner and so weobviously know which direction we went there. We think there is going to be a lot

4 of momentum in other markets in a lot of places where people are going to want tohave that same smartphone experience but throughout their entire daily life. And I

5 think it's going to really require us to add a larger platform of goods and

6technologies that the Atheros team has.

7 84. The Merger also suffered from several conflicts of interest. The Merger was

8 primarily negotiated by defendant Barrat, Lazar, Atheros' Chief Financial Officer and Senior Vice

9 President of Corporate Development, and Adam Tachner, Atheros' Vice President and General

10 Counsel. Simultaneously while negotiating the Merger Agreement, Barrat, Lazar, and Tachner

11 negotiated their continued employment with Qualcomm after the Merger, along with that of other

12 key Atheros executives, including Hing Chu, Amir Faintuch, Richard Hegberg, Daniel A.

13 Rabinovitsj, Gary L. Szilagyi, David D. Torre, and Jason Zheng.

14 85. Specifically, defendant Barratt, who joined Qualcomm as president of networking

15 and connectivity, continues to receive the same ($430,000) or higher annual salary, retention

16 bonuses equal to 100% of his annual salary at the end of each of his first two years of continued

17 employment with Qualcomm, target bonuses equal to 100% of his annual salary at Atheros plus

18 75% of his annual salary at Qualcomm and ten semi-annual grants of Qualcomm restricted stock

19 units with each giant having a grant date fair market value of $2,000,000, or $20,000,000 in

20 restricted stock units alone over the first five years.

21 86. The employment offers to each of the other executives, including Lazar, and

22 Tachner, guarantee them a salary equal to or greater than the salary received from Atheros, plus

23 retention bonuses up to 100% of their annual salary at the end of each of their first two years of

24 continued employment, plus baseline bonuses of up to 70% of their annual salary, stretch bonuses

25 of up to 60% of their annual salary, an inducement giant of up to 37,500 Qualcomm restricted stock

26 units, and four semi-annual giants of Qualcomm restricted stock units with each giant having a

27 giant date fair market value of up to $550,000.

1




1 87. Moreover, each of the executives, including defendant Barratt, Lazar and Tachner,

2 were able to negotiate a continuation of their change of control agreements such that if they are

3 terminated without cause, if there is a material reduction change in their authorities, duties or

4 responsibilities, or if they are required to relocate by more than 50 miles within twelve months of

5 the Merger, they will receive, at a minimum, a lump sum payment of one year's full salary and

6 annual bonus, accelerated payment of any unpaid retention bonus payments and, most notably, a

7 lump sum cash payment equal to the aggregate giant date fair market value of all semi-annual

8 Qualcomm restricted stock unit grants contemplated by the offer letter that have not been granted as

9 of the date of termination, which in the case of Barratt could have a value of up to $20,000,000.

10 Moreover, Atheros' preliminary proxy statement ("Preliminary Proxy") filed with the SEC on

11 February 1, 2011 revealed that as of January 18, 2011, Barratt alone held 138,646 unvested options

12 to purchase Atheros stock, with an estimated value of $1,750,927, and 236,668 unvested Atheros

13 restricted stock unites ("RSUs"), with an estimated value of $10,650,060, both of which would

14 immediately vest and be cashed out under the negotiated change of control provisions. Thus, in

15 total, between vested and unvested options and RSUs alone, under the negotiated change of control

16 provisions, Barratt would be entitled to a lump sum total payment of over $47.4 million.

17 88. According to the Preliminary Proxy, the executive officers', including defendant

18 Barran's, outstanding Atheros RSUs and stock options would be converted into Qualcomm RSUs

19 or stock options, using the same terms and vesting schedule. Thus, the executive officers did not

20 suffer the adverse tax consequences upon the close of the Merger as did the Company's public

21 shareholders. These RSUs and options converted to an opportunity to receive or purchase, as

22 applicable, Qualcomm stock based on the ratio of the merger consideration (i.e., $45) to the average

23 closing price of Qualcomm stock for the twenty days prior to the close of the Merger. This is

24 particularly significant as Qualcomm stock jumped given the market's perceived strategic benefits

25 of the Atheros acquisition. As noted in the Company's SEC filings, the components of executive

26 officer compensation not only consist of a base salary and bonus, but also of stock options and

27 restricted stock units grants:

1




Moreover, our named executive officers were granted the following Time-based

1 RSUs and Performance-based RSUs. Our Compensation Committee also consideredDr. Barratt's potential to enhance long-term stockholder value. By including a cash

2 bonus based on the achievement of performance objectives that is greater than amajority of Dr. Barratt's total potential cash compensation, and including significant

3 giants of restricted stock units that are subject to vesting over four years andadditional restricted stock units that are subject to vesting based on achievement of

4 corporate financial performance goals, our Compensation Committee has tied Dr.Barratt's cash and equity-based compensation directly to our performance, both in

5 the near term over the following year and in the long-term.

689. The options held by the Individual Defendants other than Barratt, however,

7immediately vested and were cashed out in the Merger. As demonstrated by the chart below,

8through this immediate vesting and cash out, the Individual Defendants received lump sum

9payments of up to $6.2 million:

10Total Number of

11 Options Subjectto Accelerated Dollar Value ofVesting at the Accelerated Total Number of Dollar Value of

12 Closing(1) Options(2) All Options(1) All Options(2)

Daniel A. Artusi 22 500 $ 358 321 52 500 $ 816 675,13 Charles E Harris(3) 5,937 $ 70,532 38,725 $ 1,231,623

Christine King 20,157 $ 406,775 36,250 $ 754,300

14 Teresa H Meng 1,250 $ 14,850 175,000 $ 6,267,436Marshall L Mohr 12 501 $ 222 936 52 500 $ 1 224 975

15 Andrew S Rappaport 1,250 $ 14,850 52,500 $ 1,224,975Willy C. Shih 12,501 $ 222,936 67,500 $ 1,326,750

16

17 (1) The numbers in this table were calculated assuming that the closing of the Merger occurred on April 1, 2011 andthat the directors received no further option grants prior to the closing

18 (2) The dollar value of options was calculated by subtracting the per share exercise price of the options from $45.00

per share and multiplying the amount of this difference by the number of shares subject to the options(3) Mr. Harris was an employee director who was entitled to the same equity award treatment as non-employee

19 directors

20 90. Atheros' business was inextricably intertwined with Qualcomm as the majority of

21 the Company's design wins are based on Qualcomm platforms. Moreover, at all times since the

22 inception of the companies' joint venture, Qualcomm has been well aware of the financial plans and

23 significant non-public details about Atheros' operating and financial conditions. This business

24 relationship and knowledge of the Company's operating and financial details provided Qualcomm

25 with additional leverage and advantages it was able to utilize in negotiating the terms of the Merger.

26

27

2




1 91. Defendant Barratt explained the close connection between Atheros and Qualcomm in

2 response to an analyst's question during a quarterly conference call on April 19, 2010 (more than

3 one month after Barratt had commenced negotiations with Qualcomm), when he stated.

4 I think what we've said in previous quarters still applies today. Our relationship withQualcomm is still strong. Our teams do work closely together. Qualcomm still

5 continues to work on their own internal technology and solutions. And I think theproducts we are developing are largely complementary to the ones that Qualcomm is

6 bringing to market. And you are correct that still the majority of our wins are onQualcomm-based platforms. But in some cases they're more directly with the

7 customer rather than necessarily through that channel. And of course, we haveadditional baseband partnerships as well that are generating some wins in a variety of

8 other handset opportunities too.

9 92. This close relationship with Qualcomm is further demonstrated by the negotiations

10 leading to the Merger. For example, the Definitive Proxy reveals that the Individual Defendants

11 never seriously solicited or considered bids from other prospective financial or strategic bidders.

12 Indeed, the Definitive Proxy reveals that defendant Barratt and various other Company executives,

13 with Board authorization, engaged in continuous ongoing negotiations and preliminary due

14 diligence with Qualcomm beginning on March 17, 2010, but the Board did not even retain a

15 financial advisor until September 8, 2010. Even then, the Board failed to request that Qatalyst, its

16 financial advisor, assemble a list of other potential interested parties until November 8, 2010— after

17 the Company had already received a bid from Qualcomm Qatalyst subsequently identified eleven

18 possible competing bidders and on December 1, 2010, for the first time, the Board authorized its

19 financial advisor to engage in discussions with potentially competing bidders, but inexplicably, with

20 only with two of the eleven identified companies. Less than one week later, and before Qatalyst

21 even received any final responses from these two potential competing bidders, the Individual

22 Defendants entered into an exclusivity agreement with Qualcomm, virtually assuring that

23 Qualcomm would not face any competing offer for the Company.

24 C. The False and Misleading Definitive Proxy and Filings Related Thereto

25 93. On February 11, 2011, Atheros and the Individual Defendants filed the Definitive

26 Proxy with the SEC.

27




1 94. On March 7, 2011, as a result of and to address this litigation and parallel related

2 proceedings in Delaware state court, Atheros and the Individual Defendants amended the Definitive

3 Proxy by filing the Proxy Supplement with the SEC. The Proxy Supplement disclosed the

4 following facts, among others, that had been omitted and/or mischaracterized in the Definitive

5 Proxy: (i) approximately 98% of the $24,000,000 fee owed by the Company to Qatalyst was

6 contingent upon completion of the Merger; and (ii) the Company's CEO, defendant Barratt, learned

7 at least as far back as October 29, 2010 that Qualcomm had intended to employ him after any

8 merger between the companies.

9 95. On March 28, 2011, 74.6% of Atheros shareholders voted to approve the Merger

10 based on the statements in the Definitive Proxy and the Proxy Supplement.

11 96. The Definitive Proxy stated on page 28:

12 Atheros retained Qatalyst Partners LP, or Qatalyst Partners, as its financial advisorfor the purpose of advising Atheros in connection with a potential transaction such as

13 the Merger and to evaluate whether the consideration to be received in the Merger bythe holders of Atheros common stock (other than QUALCOMM or any affiliate of

14 QUALCOMM) was fair, from a financial point of view, to such holders. QatalystPartners has provided its written consent to the reproduction of the Qatalyst Partners

15 opinion in this proxy statement. At the meeting of Atheros' Board of Directors onJanuary 4, 2011, Qatalyst Partners rendered its oral opinion that, as of such date and

16 based upon and subject to the considerations, limitations and other matters set forththerein, the consideration to be received by the holders of Atheros common stock

17 (other than QUALCOMM or any affiliate of QUALCOMM) in the Merger was fair,from a financial point of view, to such holders. The Qatalyst Partners written

18 opinion, delivered following the Board meeting and dated January 5, 2011, issometimes referred to herein as the Qatalyst Partners opinion.

1997. The Definitive Proxy further stated on page 29, "The following is a summary of the

20material financial analyses undertaken by Qatalyst Partners in connection with rendering the

21Qatalyst Partners opinion."

2298. The Definitive Proxy then provided a summary of the material financial analyses that

23were performed by Qatalyst and titled as follows: (i) "Implied Transaction Premiums;" (ii) "Implied

24Multiples Analysis;" (iii) "Discounted Cash Flow Analysis;" (iv) "Selected Companies Analysis;"

25and (v) "Selected Transactions Analysis." The summary of these analyses is found on pages 30

26through 34 of the Definitive Proxy.

27

2




1 99. The Definitive Proxy, however, failed to disclose two financial analyses that were

2 performed by Qatalyst and provided to and relied upon by the Board in approving the Merger. As

3 set forth in a Qatalyst board presentation (the "Qatalyst Presentation"), dated January 4, 2011, a

4 copy of which is attached as Exhibit A hereto, Qatalyst also performed in support of its fairness

5 opinion two analyses titled as follows: (i) "Summary of Analyst Estimates & Valuation

6 Methodologies;" and (ii) "Historical Termination Fee Analysis."

7 100. The Summary of Analyst Estimates & Valuation Methodologies is found at Exhibit

8 A on page 13 of the Qatalyst Presentation, the contents of which are incorporated by reference

9 herein.

10 101. The failure to include a fair summary and key inputs from the Summary of Analyst

11 Estimates & Valuation Methodologies renders the Definitive Proxy false and misleading because:

12 (i) the Definitive Proxy falsely represented that shareholders were being provided with "a summary

13 of the material financial analyses undertaken by Qatalyst Partners in connection with rendering the

14 Qatalyst Partners opinion," when in fact shareholders had not been provided with all material

15 financial analyses undertaken by Qatalyst; and (ii) the Definitive Proxy's summary of Qatalyst's

16 analyses is misleading as a result of the omission of the aforementioned data relating to analyst

17 estimates and valuation methodologies.

18 102. The Historical Termination Fee Analysis is found on pages 36 and 37 of the Qatalyst

19 Presentation, the contents of which are incorporated by reference herein.

20 103. The failure to include a fair summary and key inputs contained in the Historical

21 Termination Fee Analysis renders the Definitive Proxy false and misleading because: (i) the

22 Definitive Proxy falsely represented that shareholders were being provided with "a summary of the

23 material financial analyses undertaken by Qatalyst Partners in connection with rendering the

24 Qatalyst Partners opinion," when in fact shareholders had not been provided with all material

25 financial analyses undertaken by Qatalyst; and (ii) the Definitive Proxy's summary of Qatalyst's

26 analyses is misleading as a result of the omission of the aforementioned data for historical

27 termination fees in comparable transactions.

2




FIRST CAUSE OF ACTION 1

Violations of Section 14(a) of the Exchange Act and Rule 14a-9

2 (Against Atheros and the Individual Defendants)

3 104. Plaintiff incorporates each and every allegation set forth above as if fully set forth

4 herein.

5 105. Atheros and the Individual Defendants caused the Definitive Proxy and the Proxy

6 Supplement to be issued with the intention of soliciting shareholder support of the Merger.

7 106. Section 14(a) of the Exchange Act requires full and complete disclosure in

8 connection with proxy solicitations.

9 107. Section 14(a) of the Exchange Act makes it unlawful to solicit a proxy "in

10 contravention of such rules and regulations as the [SEC] may prescribe as necessary or appropriate

11 in the public interest." 15 U.S.C. §78n(a).

12 108. Rule 14a-9, which the SEC promulgated under §14(a), provides that no proxy

13 statement shall contain "any statement which, at the time and in the light of the circumstances under

14 which it is made, is false or misleading with respect to any material fact, or which omits to state any

15 material fact necessary in order to make the statements therein not false or misleading . . . ." 17

16 C.F.R. §240.14a-9(a).

17 109. The Definitive Proxy violated §14(a) because it contained the materially false and

18 misleading statements set forth above concerning the two undisclosed financial analyses performed

19 by Qatalyst

20 110. In the exercise of reasonable care, Atheros and the Individual Defendants should

21 have known that the Proxy was materially false and misleading because they received and relied on

22 the information contained in the Qatalyst Presentation.

23 111. Atheros shareholders voted to approve the Merger based on the false and misleading

24 statements in the Definitive Proxy, and the Merger was consummated as a result thereof

25

26

27

2




1 SECOND CAUSE OF ACTION

2 Violations of Section 20(a) of the Exchange Act(Against the Individual Defendants)

3


5 herein.

6 113. The Individual Defendants acted as controlling persons of Atheros within the

7 meaning of §20(a) of the Exchange Act as alleged herein. By virtue of their positions as officers

8 and/or directors of Atheros, and participation in and/or awareness of the Company's operations

9 and/or intimate knowledge of the false and misleading statements contained in the Definitive Proxy

10 filed with the SEC, they had the power to influence and control and did influence and control,

11 directly or indirectly, the decision making of the Company, including the content and dissemination

12 of the various statements which Plaintiff contends are false and misleading.

13 114. Each of the Individual Defendants was provided with or had unlimited access to

14 copies of the Definitive Proxy and the statements alleged by Plaintiff to be false and misleading

15 prior to and/or shortly after these statements were issued and had the ability to prevent the issuance

16 of the statements or cause the statements to be corrected.

17 115. In particular, each of the Individual Defendants had direct and supervisory

18 involvement in the day-to-day operations of the Company, and, therefore, is presumed to have had

19 the power to control or influence the particular transactions giving rise to the securities violations

20 alleged herein, and exercised the same. The Definitive Proxy contains the unanimous

21 recommendation of each of the Individual Defendants to approve the Merger. The Individual

22 Defendants were, therefore, directly involved in the creation of the Definitive Proxy.

23 116. In addition, as the Definitive Proxy sets forth at length, and as described herein, the

24 Individual Defendants were each involved in negotiating, reviewing, and approving the Merger.

25 The Definitive Proxy purports to describe the various issues and information that the Individual

26 Defendants reviewed and considered. The Individual Defendants participated in drafting and/or

27 gave their input on the content of those descriptions.

2




1 117. By virtue of the foregoing, the Individual Defendants violated §20(a) of the

2 Exchange Act.

3 118. As set forth above, the Individual Defendants had the ability to exercise control over

4 and did control a person or persons who have each violated §14(a) and SEC Rule 14a-9, by their

5 acts and omissions as alleged herein. By virtue of their positions as controlling persons, these

6 defendants are liable pursuant to §20(a) of the Exchange Act. As a direct and proximate result of

7 Individual Defendants' conduct, Plaintiff and the Class were injured thereby.

8 THIRD CAUSE OF ACTION

9Equitable Assessment of Attorneys' Fees and Expenses

10 (Against All Defendants)


12 herein.

13 120. Plaintiff filed a meritorious lawsuit.

14 121. On February 15, 2011, Plaintiff filed a motion for a preliminary injunction raising

15 issues relating to, among other things, the Company's inadequate disclosures in the Definitive

16 Proxy concerning Qatalyst's compensation and defendant Barratt's employment at Qaulcomm post-

17 Merger.

18 122. On February 24, 2011, Plaintiff's counsel sent a letter to Defendants' counsel

19 demanding, among other things, supplemental disclosures to the Company's Definitive Proxy.

20 123. On March 4, 2011, the Delaware Court of Chancery issued its Order and

21 Memorandum Opinion, enjoining the Merger due to the Company's inadequate disclosures

22 concerning the contingent nature of Qatalyst's compensation and defendant Barratt's knowledge

23 concerning his employment at Qaulcomm post-Merger.

24 124. Thus, as a result of and in order to address the lawsuit and related litigation in

25 Delaware state court, the Company made supplemental disclosures on March 7, 2011 as set forth in

26 the Proxy Supplement. As a result, Plaintiff assisted in and conferred a benefit on the Company's

27

2




1 shareholders by requiring Defendants to provide the additional disclosures contained in the Proxy

2 Supplement.

3 125. To date, Plaintiffs counsel has not received any fees for the benefit provided to

4 Atheros' shareholders. Nor has counsel been reimbursed for their out-of-pocket expenses relating

5 to securing the benefit.

6 126. Accordingly, Plaintiffs counsel is entitled to a fee in an amount to be determined by

7 the Court or the trier of fact in addition to reimbursement for their actual out-of-pocket costs. The

8 Individual Defendants and Atheros should pay Plaintiffs counsel's fees and reimburse their out-of-

9 pocket expenses because it was, in the first instance, the Individual Defendants' duties and

10 obligations to disclose all material information to Atheros' shareholders.

11 127. Plaintiff has no adequate remedy at law.

12 PRAYER FOR RELIEF

13 WHEREFORE, Plaintiff on behalf of himself and on behalf of the proposed Class, prays

14 that the Court provide relief, including:

15 A. Declaring that this action is properly maintainable as a Class action and certifying

16 Plaintiff as Class representative and Plaintiffs counsel as Class Counsel;

17 B. Declaring that Atheros and the Individual Defendants violated §14(a) of the

18 Exchange Act;

19 C. Declaring that the Individual Defendants violated §20(a) of the Exchange Act;

20 D. Declaring that Plaintiff is entitled to an Equitable Assessment of Attorneys' Fees and

21 Expenses;

22 E. Rescinding, to the extent already implemented, the Merger or any of the terms

23 thereof, or granting Plaintiff and the Class rescissionary damages;

24 F. Directing Defendants to account to Plaintiff and the Class for all damages suffered as

25 a result of the Individual Defendants' wrongdoing;

26 G. Awarding Plaintiff the costs and disbursements of this action, including reasonable

27 attorneys' and experts' fees; and

2




1 H. Granting such other and further equitable relief as this Court may deem just and

2 proper.

3 JURY DEMAND

4 Plaintiffs demand a trial by jury.

5

6Dated: June 30, 2011 FARUQI & FARUQI, LLP

7By: Is/Vahn Alexander

8 VAHN ALEXANDER

9 1901 Avenue of the Stars, Second FloorLos Angeles, CA 90067

10 Telephone: (310) 461-1426

11Facsimile: (310) 461-1427

FARUQI & FARUQI, LLP12 Juan E. Monteverde

Richard W. Gonnello

13 369 Lexington Avenue, Tenth FloorNew York, NY 10017

14 Telephone: (212) 983-9330

15Facsimile: (212) 983-9331

16Counsel for Plaintiff and the Proposed Class

17

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21

22

23

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28 8 FIRST AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF SECTIONS I4(a)


Case5:11-cv-00640-LHK Docu me nt50 Filed06/30/11 Page30 of 33

CERTIFICATION OF JOEL ICRIEGERIN SUPPORT OF CLASS ACTION COMPLAINT

Joel Krieger ("plaintiff') declares, as to the claims asserted under the federal

securities laws, that:

I. Plaintiff has reviewed the complaint prepared by counsel and has

authorized its filing.

2. Plaintiff did not purchase the security that is the subject of the complaint at

the direction of plaintiffs' counsel or in order to participate in any private action arising under the

federal securities laws.

3. Plaintiff is willing to serve as a representative party on behalf of a class,

including providing testimony at deposition and trial, if necessary.

4. During the proposed Class Period, plaintiff executed the following

transactions relating to Atheros Communications, Inc.:

Purchase of 100 shares at $45.943 per share on 01/04/11

5. In the past three years, plaintiff has not sought to serve as a representative

party on behalf of a class in an action filed under the federal securities laws.

6. Plaintiff will not accept any payment for serving as a representative party

on behalf of a class beyond plaintiffs pro rata share of any recovery, except such reasonable costs

Case5:11-cv-00640-LHK Document50 Filed06/30/11 Page31 of 33

and expenses (including lost wages) directly relating to the representation of the Class as ordered

or approved by the Court.

The foregoing are, to the best of my knowledge and belief, true and correct statements.

June 7, 2011

1 JOEL KRIEG ' R


1 CERTIFICATE OF SERVICE

2 I hereby certify that on June 30, 2011, I electronically filed the foregoing with the Clerk

3 of the Court using the CM/ECF system, which will send notification of such filing to the e-mail

4 addresses denoted on the Electronic Mail Notice List, and I hereby certify that I have mailed the

5 foregoing document Ina the United States Postal Service to the non-CM/ECF participants

6 indicated on the Manual Notice List.

7Dated: June 30, 2011 /s/Vahn Alexander

8 Vahn Alexander

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CAND-ECF- Page 1 of 1Case5:11-cv-00640-LHK Document50 Filed06130111 Page33 of 33

Mailing Information for a Case 5:11-cv-00640-LHK

Electronic Mail Notice List

The following are those who are currently on the list to receive e-mail notices for this case.

• Vahn [email protected],[email protected]

• Ranah Leila [email protected] ,[email protected],[email protected]

• David Malcolm [email protected],[email protected],[email protected]

• Amy L [email protected],[email protected],[email protected]

• David Allen [email protected],[email protected] ,[email protected]

Manual Notice List

The following is the list of attorneys who are not on the list to receive e-mail notices for this case (whotherefore require manual noticing). You may wish to use your mouse to select and copy this list intoyour word processing program in order to create notices or labels for these recipients.

Robert H. BaronCravath, Swaine & MooreWorldwide Plaza825 Eighth AvenueNew York, NY 10019-7475

https://ecf.cand.uscourts.gov/cgi-bin/MailList.pl?848549112466721-L 366 0-1 6/30/2011

Documents

1 FARUQI FARUQI, LLP VAHN ALEXANDER (167373)securities.stanford.edu/filings-documents/1046/ACI00_01/... · 2011. 7. 7. · 22 in January 2010. Harris is the former CEO of Intellon